Abstract

With the rise of behavioral economics, there is now much greater
realism in the description of human decision making. This paper
explores and integrates important behavioral economic understandings
concerning how our mind works with respect to economic
decision making. From scholars like Herbert Simon, Daniel Kahneman
and George Loewenstein we have learned that people have
limited cognitive capacity to deal with the complexity of the real
world, make many cognitive errors, and often make poor decisions
when strong negative emotions are aroused. Also, our minds in
decision making are too often oriented to seeking what we want
or desire, not what is really good for us. There is also some good
news. We can learn how to avoid error and become more skilled,
good enough decision makers. Gerd Gigerenzer has explained how
successful decision makers typically use heuristics in the face of
complexity. To illustrate the above, this paper provides analyses
of food-related decision making related to the obesity social problem.
To counter decision-making deficiencies, people can raise their
decision making capacities by making a variety of investments in
intangible human capital. Another important implication is that
decision-making deficiencies contribute to businesses’ internal inefficiencies
(X-inefficiencies). Thus, decision-making deficiencies imply
below potential national productivity.